Lawmakers Consider Expanding Hollywood Tax Credit

The freshly painted Hollywood Sign is seen after a press conference to announce the completion of the famous landmark’s major makeover, December 4, 2012 in Hollywood, California. Some 360 gallons (around 1,360 liters) of paint and primer were used to provide the iconic sign with it most extensive refurbishment in almost 35 years in advance of it’s 90th birthday next year. (ROBYN BECK/AFP/Getty Images)

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SACRAMENTO (AP) – With only a few weeks left in the legislative session, lawmakers are negotiating the extension and expansion of a Hollywood tax credit designed to keep film and television production in California.

Assemblymen Raul Bocanegra and Mike Gatto, both Democrats from Los Angeles, have proposed AB1839, which would extend the tax credit by five years and expand it to cover big-budget productions costing more than $75 million, among other changes. The current program provides up to $100 million a year in film tax credits and will expire in July 2017 if not renewed.

“We want to do all that we reasonably can to end the runaway production and have California recapture this important part of our economy,” said Senate President Pro Tem Darrell Steinberg, D-Sacramento. “In terms of where it ends up? I don’t know yet.”

The next Senate leader, Sen. Kevin de Leon, recently expressed concerns about the current process for handing out tax credits for Hollywood productions, which is handled as a lottery because the demand is greater than the available money. Nevertheless, the Los Angeles Democrat said he remains committed to passing an extension and expansion.

The bill is currently in the Senate Appropriations Committee, which is chaired by de Leon.

“I have every hope and confidence that we will deliver a smarter, stronger program that will keep the cameras rolling in our state for years to come,” he said in a statement.

While producers say the lottery structure makes it hard to plan, state film officials say it provides fairness given the demand. California approved 26 projects for tax credits out of nearly 500 that applied this year, according to the California Film Commission.

Among those receiving credits are the film version of the HBO series “Entourage” by Warner Bros., “The Gambler” drama by Paramount and television series such as “Pretty Little Liars” and “Franklin & Bash.”

Los Angeles Mayor Eric Garcetti wants California to increase the annual $100 million tax credit to compete with New York, which offers $420 million a year in tax incentives. Any final amount needs approval from Gov. Jerry Brown, who is campaigning for re-election on his record of fiscal restraint and paying down debt.

Since 2009, the state has offered incentives to eligible film and tax productions to counter tax credits and grants offered by other states and countries trying to lure production out of California. Nationwide, almost half the industry’s jobs are located in Los Angeles County, according to the Legislative Analyst’s Office.

But the nonpartisan analyst expressed doubt about whether California’s tax credit program would reverse production declines. In recent years, it said fewer large-budget films have been made in California and that other states are providing more than $1.4 billion annually to the entertainment industry.

Los Angeles, for example, suffered a blow when the “The Tonight Show” relocated to New York City in February, a move made possible by a 30 percent tax credit.

The California Film and Television Production Alliance, a coalition of guilds, unions, producers and industry associations, is pushing for AB1839 to preserve the home-grown industry.

The current program allows films with budgets between $1 million and $75 million and television movies with a minimum budget of $1 million to apply for a 20 percent tax credit. AB1839 would lift the cap so more expensive productions will be eligible for the tax credit, although only the first $100 million of those productions would be eligible to receive it, according to Gatto’s staff.

The bill does not say whether the total amount offered under the program each year should be raised from the current $100 million, although several lawmakers support an increase.

AB1839 also allows one-hour television series, including original programming on streaming services such as Netflix, to apply. It offers a 25 percent tax credit for television shows that relocate to California within the first year of production.

According to Gatto’s office, the California Film and Television Job Retention and Promotion Act has prevented as many as 51,000 jobs from leaving the state and generated $4.7 billion in economic activity. Yet his office also said California lost more than 16,000 entertainment jobs between 2004 and 2012.

“I think it’s appropriate to use this for key, targeted industries where we are at real risk of losing jobs,” Steinberg said. “But we also have to be very smart about how we negotiate all these things because you don’t want to subsidize more than you have to. That’s a very fine line.”

Even though it does not expire until 2017, the Hollywood tax credit program is being reconsidered in this year’s legislative session because the credits were initially awarded for more than one fiscal year. That means there is now just one year of credits available before the program expires.